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Is India Seriously Considering A Gold Import Ban?

It's been a wild year for India's gold importers. With the government moving on a variety of initiatives to reduce shipments into the country -- resulting in a 59% fall in imports for the fiscal year to date.

And news this week suggests imports could be about to fall even further.

Local press in India reported Sunday that some observers believe a big step is coming in import policy. Potentially including a complete ban on new shipments of gold into the country.

That revelation came from prominent industry body Indian Bullion & Jewellers Association (IBJA). Which sent a text message to its 2,500 members in the gold sales business across India, saying that new monetary policy from the government may be a set-up for the import ban.

The text message noted, "We hear from certain circles of this possibility (gold import ban and advancement of deposit date) though nothing official is out yet."

The IBJA went on to note that India's government recently made a decision to pull 500 and 1,000 rupee bank notes ($7.50 and $15) off the market. Announcing on November 8 that such small bills will only be accepted until the end of December -- after which they will be worthless.

That move is aimed at combating proceeds from illegal industries, often kept in cash. But it's reportedly having an unexpected consequence -- a rush to buy gold.

Holders of "black money" small bills have apparently been trying to wash their cash by trading it for bullion. With reports suggesting gold sellers have been reaping big profits from this desperation -- charging up to 67% premiums to market price for gold when buyers pay in small bills. Related: The Catastrophic Consequences Of Peak Oil Demand

That in turn has caused the government to crack down on jewellers. With the IBJA noting that up to 600 of its members have been asked to provide detailed information on recent sales.

As the IBJA explained, "We are aware that certain members of the trade are importing gold only to sell the same against old notes at a hefty premium. So, if the government wants to stop this malpractice it might consider a ban on imports."

Such a move would obviously be a huge development for the global gold market. Watch for any official moves from India's government between now and the end of the year.